MercoPress. South Atlantic News Agency

Euro interest rates unchanged, but ECB “vigilant”

The European Central Bank (ECB) decided Thursday to leave basic interest rates unchanged at 2.25% but said it will remain “vigilant” about long term inflationary pressures.

"We will exercise vigilance so as to ensure the solid anchoring of long-term inflation expectations at levels in line with price stability", said ECB President Jean-Claude Trichet adding that "in order for monetary policy to make an ongoing contribution towards supporting growth and employment in the euro area, inflation expectations must be firmly anchored".

"Economic activity started to improve and broaden in the second half of 2005 and, on the basis of the latest indicators and survey data, it appears that this process has basically continued", said Mr. Trichet who was optimistic about the future.

"Looking ahead, the conditions remain in place for economic growth to continue over the coming quarters. The external environment is favourable, providing support for euro area exports. Investment is expected to remain strong, benefiting from an extended period of very favourable financing conditions, balance sheet restructuring, and accumulated and ongoing gains in earnings and business efficiency".

Mr. Trichet indicated that consumption growth should also strengthen over time, in line with developments in real disposable income, "as the labour market situation gradually improves".

However, "downside risks to economic growth, relating, in particular, to persistently high and volatile oil prices and concerns about global imbalances, still dominate on the external side".

The ECB raised rates by a quarter of a percentage point in December, the first rise in five years. The ECB is forecasting economic growth of 1.9% across the 12-member eurozone bloc compared with 1.4% last year

"Cross-checking the outcome of our economic analysis with that of our monetary analysis supports the case for vigilance to ensure that the risks to price stability over the medium to longer term do not materialize", highlighted ECB chief.